27 January 2016Actuarial & underwriting

Fifteenth century case could help clarify case law on PCCs, claims lawyer

Nigel Feetham, a senior partner at Gibraltar law firm Hassans International and author of a number of books, has found a surviving report of fifteenth century litigation from the archives of Bruges that relates to a business structure used by the Medici Bank (the Medieval bank owned by the famous Florentine family) designed specifically to segregate assets and liabilities in a similar way that a PCC does today.

While the context and business world are very different now, Feetham notes that the court record represents only a few known judicial examples of how the concept of a PCC type structure might be considered by a court of law.

In his article Feetham cites two other old cases that might also be of possible assistance; one concerning litigation against a Duke dating back to 1797.

One of the principal criticisms of PCCs is that there is little no case-law anywhere that considers their legal status in the context of disputes.
This was partly rectified last year when the Montana District Court in the case Pac Re 5-AT v. AmTrust concluded that it should be the PCC, rather than an individual cell, that is the proper legal entity that can sue and be sued.

Previously, there has been a dearth of court cases on this or other aspects of the PCC structure and some have claimed the Montana case makes a significant contribution to the history of PCCs whilst also raising the question as to how the protected cell continues in the event its or the PCC failure.

However, Feetham has pointed out that some jurisdictions had have already made provision for the liquidation of a cell as if it was a separate legal entity in the event of insolvency of that cell.

In a recent paper, Feetham explains in detail the significance of the fascinating contemporary court record dating back to 1455.

“I am most interested in the Medici Bank because its organisational structure for its foreign branches would have raised the same question from a pre-modern law perspective as today's segregated business forms (Series LLC and the PCC). Could the liabilities of a foreign branch attach to the assets of another branch?” Feetham writes.
“Commentators have often noted the lack of substantive case-law relating to the PCC and Series LLC as a reason for caution. Yet here we have an innovative business structure being used in Medieval and Renaissance Europe to conduct the revived business of the age in a legal environment far removed from the clarity and certainty of our own modern system of law.”

He goes on in the paper to point out that whilst the Medici relied on an expectation that their banking structure would afford them legal protection if ever challenged by a litigious merchant or depositor, they could not have known where the law stood in the event of litigation before a foreign court.

“It should be undeniable, however, that the legal case in favour of a PCC (therefore by implication, Series LLC), which entities are today widely used in international business transactions (principally for captive insurance) is significantly stronger given that the laws of many jurisdictions now contain PCC legislation (or similar statutory regime) and especially so with the globalisation of commerce and with well-established legal principles of comity,” Feetham said.

“It is certainly debatable what jurisprudential value the Medici banking case would have today, but still it cannot be ignored. It is also court decisions like this that gave impetus to the revival of commerce in the Medieval Ages, which formed the cradle of modern capitalism. A court looking at a PCC dispute today and applying modern commercial reality could therefore draw some inspiration from it.”
Feetham includes a translation of the court report.

The case is fascinating and also gives an insight into the expansion of trade in Renaissance Europe. Here a merchant from Milan attempted to sue the Medici banking branch in Bruges, before the courts in Bruges, for goods sold to him by the Medici banking branch in London claiming that the two were part of the same entity and “had the same master” (the Medici from Florence).

Nigel Feetham is the co-author of the book “Protected Cell Companies: A Guide to Their Implementation and Use (2d ed. Spiramus Press 2010) and the book was cited in the Montana Court judgment. A link to his recent paper on this new court record can be found here

Feetham’s paper has also been published elsewhere. The case report represents an intriguing find. Speaking to this journal Feetham said: “The Medici were the greatest capitalists of their age quite apart from being the greatest patrons of Renaissance art and culture. They also understood that pan-European commercial activity at a large scale involved risk-taking and they very obviously tried to find a way to limit their liability long before limited liability under general incorporation law was introduced. It goes to show how much we owe to Italy in every sphere (history, culture, trade, art, and financial/legal innovation).”

This piece was originally published on Intelligent Insurer  here.